Banks’ interest rate spread falling

A declining trend of interest rate spread in the country's banking sector continued until November, as the commercial banks slashed their interest rates more on lending than on deposits, officials said.
The weighted average spread between lending and deposit rates offered by the banks came down to 4.40 per cent in November 2017 from 4.50 per cent in the previous month, according to the central bank's latest statistics.
The spread was 4.55 per cent in September, and 4.72 per cent in January 2017.
"The banks may offer higher interest rates on deposit to collect more funds for minimising the gap between deposit and credit growths in the near future," a senior official of the Bangladesh Bank (BB) told the FE on Sunday.
The BB official's observation came against the backdrop of rising trend in credit than that of deposit in the recent months, as depositors feel discouraged to put their money in the banks with low interest rates.
The growth in deposit, on a year-on-year basis, stood at around 11 per cent in November last, while the credit growth reached 19 per cent. It happened so due to higher trade financing by the banks for settling import-payment obligations, particularly of fuel oils, consumer items, food grains and capital machinery.
The weighted average rate on deposits rose to 4.90 per cent in November from 4.89 per cent in the previous month, while interest on lending dropped to 9.30 per cent from 9.39 per cent, the BB data showed.
The central banker also said BB is now working to keep the spread within 4.0 per cent in the near future.
The banks have already been advised to reduce their interest rate spread through improving efficiency instead of slashing interest rates on deposit, he added.
Echoing the BB official, Mehmood Husain, managing director and chief executive officer of NRB Bank Limited, said most of the banks 'significantly' increased their interest rates on deposit in December 2017.
"We expect that the rising trend of interest rates on deposit may continue in the coming months."
The senior banker also opined that the banks will gradually increase the interest rates on lending to minimise their cost of funds.
The spread being maintained by at least nine commercial banks, out of 57, still remains high. It ranges between more than 5.0 per cent and 8.49 per cent.
Average spread with the state-owned commercial banks (SoCBs) was 3.90 per cent, private commercial banks (PCBs) 4.34 per cent, foreign commercial banks (FCBs) 6.45 per cent, and specialised banks (SBs) 2.81 per cent in November 2017.
Excluding consumer finance and credit card, the spread of all banks also came down to 4.30 per cent in November 2017 from 4.40 per cent in October.

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